Smart investors who are not attending their first rodeo have seen this all before. The classic boom, then bust, then ultimately despair in the energy sector is not a new phenomenon. It has happened before, and it almost always led to opportunity for those who can look past the wreckage and see the future. Now is one of those times, and one firm we cover is getting a little more aggressive.
In a new Deutsche Bank research report, while the analysts are of course tracking fourth-quarter earnings results closely, their main focus remains the direction of 2016 spending, balance sheets and crude oil volumes. They feel both are having downward pressure versus current Wall Street estimates, and with fourth-quarter results reasonably good, they are raising price targets on some top companies.
While acknowledging that the current oil pricing level remains the wild card, four top companies rated Buy make sense now for aggressive investors.
This is one of the top energy plays in the Permian Basin in West Texas. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.
The company recently announced three separate transactions that enhance its position in the southern Delaware Basin, high grade the company’s portfolio and reduce net debt:
- It agreed to acquire approximately 12,000 net acres complementary to its core North Harpoon prospect in Ward and Reeves Counties, Texas, from a private operator for total consideration of approximately $360 million, through a combination of common stock, cash and drilling carry.
- Concho completed an acreage exchange with Clayton Williams Energy, consolidating 21,000 net non-operated acres into a concentrated, operated position adjacent to its Big Chief prospect in Reeves County, Texas.
- The company also agreed to sell 14,000 net acres in Loving County, Texas, for cash proceeds of $290 million. The aggregate impact of these transactions is neutral to Concho’s 2016 capital and production outlook.
The Deutsche Bank price target is lifted to $110 from $104. The Thomson/First Call consensus price target is $114.48. The stock closed Wednesday at $91.30.
This favorite of Wall Street analysts is another top Permian Basin play. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin. Its activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions
The company also raised capital last month by pulling off an equity secondary offering. The company sold a total of 4 million shares at $56.50, which should help it continue to fight through the continued price woes.
Deutsche Bank lifted its price target to $90 from $84. The consensus estimate is $80.81, and shares closed Wednesday at $74.88.
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